Indian Shares End Lower on Profit-Taking

MUMBAI--Indian shares failed to hold on to their initial gains and ended lower Monday, dragged down by profit-taking in banks and health-care stocks which had risen sharply over the past few weeks.

The Bombay Stock Exchange's S&P BSE Sensex index ended lower by 62.14 points, or 0.3%, at 20223.98 points, while the National Stock Exchange's Nifty index lost 30.40 points, or 0.5%, to close at 6156.90. Last week, the indexes had hit their highest levels in nearly three years.

Indian shares have posted gains for five straight weeks on heavy purchases by overseas investors who have remained bullish on the growth outlook of Indian companies, especially after inflation slowed to its lowest in three-and-a-half years in April.

Lenders have led the rally, mainly due to expectations that India's slowing inflation will give room for the central bank to lower interest rates. The bank has already cut rates thrice this year, all by a quarter of a percentage point.

Gains in some banking stocks were unreasonable over the past few weeks, said Daljit Kohli, head of research at local brokerage firm IndiaNivesh. "Investors are taking profit as their [lenders'] valuations don't justify," he added.

ICICI BankIBN4.90% was the most prominent loser among Sensex stocks, dropping 1.6% to 1,206.65 rupees. Mortgage lender Housing Development Finance fell 0.7% to 897.40 rupees, while State Bank of India,SBKJY0.00% which will report results for the January-March quarter on Thursday, dropped 0.5% to 2,413.15 rupees.

Health-care stocks reacted also to the government's decision last week to widen its control over drug prices. The step will see 348 medicines coming under a new price-control rule compared with 74 before. This is likely to hurt the profit margins of pharmaceutical companies.

Dr. Reddy's LaboratoriesRDY3.79% dropped 1.5% to 2,047.55 rupees, while Cipla lost 1.7% to 417.40 rupees. Lupin, which is part of the Nifty index but not of the Sensex, dropped 4.5% to 768.05 rupees.

SBI Securities said it expects the new rule will reduce the operating earnings of Dr. Reddy's and Lupin by 2%-5% this year. For Cipla, the hit will be 6%-9%, it added.

Most technology stocks rose after the Indian rupee fell to an 11-week low against the U.S. dollar, partly due to broad gains in the greenback against Asian currencies.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.